If the parameter E of the Cobb-Douglas production function increases
A) less output per worker can be produced for each possible value of the capital stock per worker.
B) more output per worker can be produced for each possible value of the capital stock per worker.
C) that the economy becomes less productive.
D) the value of capital per worker increases.

Question

Quizplus · Accepted Answer

The Cobb-Douglas production function is given by Y = A * K^α * L^(1-α), where Y is total production (the real value of all goods produced in a year), L is labor input, K is capital input, A represents total factor productivity, and α is the output elasticity of capital. An increase in the parameter A (which seems to be referred to as E in the question, possibly due to a typographical error) would lead to an increase in output for any given levels of capital and labor. This is because A (or E) represents a scaling factor that affects how efficiently inputs are transformed into outputs. Therefore, if A increases, it means the economy can produce more output per worker for each possible value of the capital stock per worker, indicating an increase in productivity.

If the Parameter E of the Cobb-Douglas Production Function Increases